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article imageOp-Ed: Once again speculation appears to be gouging gas consumers

By Bill Lindner     May 18, 2011 in Politics
It appeared obvious months ago when "experts" predicted $5 a gallon gas prices, that speculation was again manipulating the prices consumers pay at the pump. Now that all the speculator rhetoric has proved fallacious, it's all too clear.
For the second time since 2008, Wall Street speculators appear to be the reason for the gouging consumers are seeing at the gas pump. McClatchy News reports that while speculators are not mentioned in corporate media's conventional explanation, speculation is the one the facts point to. Analysts and "experts," many of which are paid by someone on or connected to Wall Street, usually tell us that today's high prices are due to "supply and demand," that demand for oil and gas is rising and supplies aren't keeping up, so people bid up their price. Yet once again, global and U.S. supplies are plentiful and demand is stable, though it has dropped the past few weeks, so that's not it.
When that facade fails, the analysts and “experts” tell us it's because the market is afraid that Middle East turmoil will interrupt oil supplies, and nervous buyers are bidding up prices to ensure that they lock in a contract for oil now, in case it becomes scarce later. But there has been no significant impact on Middle East oil supplies after five months of revolutions, so that facade has also failed. The "Peak Oil" myth is also a scheme designed to create artificial scarcity while jacking up prices to gouge consumers.
According to the report, some 70 percent of contracts for future oil delivery are now bought by financial speculators -- primarily big investment banks and hedge funds -- who never touch the oil. They just flip the contracts for quick profits. That leaves the remaining 30 percent of oil contracts to be bought by a purchaser that actually uses the oil. That information comes from the Commodity Futures Trading Commission (CFTC), which regulates trade in those contracts.
Michael Masters, a professional Wall Street investor who knows how the gas bubble game works, has testified to Congress repeatedly that speculators are manipulating oil prices up way beyond what supply and demand would warrant, has said that it's getting harder for any reasonable observer to dismiss the role of excessive speculation in the oil market. Oil prices raised $15 one week in early May and $5 a barrel increases in a single day with no obvious change to supply or demand.
Rex Tillerson, Exxon Mobil Chief Executive, testified before the Senate Finance Committee last week that this year's oil prices don't make any economic sense, in a roundabout way. In his testimony, Tillerson noted that current fundamentals and production costs would dictate oil in the range of $60 to $70 a barrel -- $43 dollars lower than the highs of $113 a barrel that were reached at the end of April and the beginning of May.
Pop Goes the Speculation Bubble
A recent New York Times (NYT) article confirmed that speculation was once again manipulating oil prices without mentioning the word "speculation" anywhere in the article. The first analyst cited by the NYT reveals:
After four months of surging higher, oil prices plummeted by almost 9 percent on Thursday as traders worried that American drivers were beginning to balk at paying nearly $4 a gallon of gasoline.
Energy specialists had a variety of explanations for the drop, including Thursday’s weak employment data and a strengthening dollar that tends to make all dollar-denominated commodities cheaper in dollars and more expensive for holders of other currencies.
“Pop goes the bubble,” said Michael Lynch, president of Strategic Energy and Economic Research, a consultancy firm. “It seems unlikely you will see any tightening in the market in the coming months. The worst of the political threats have past us.”
A separate analyst in the NYT article notes "The fundamentals have not been strong enough to justify these levels.” As noted by David Dayen, it appears that the bubble was getting too big to be sustainable, affecting the broader economy in a variety of ways. So the speculators ran for cover.
Speculators Make Hundreds of Billions of Dollars Manipulating Oil Prices
In both the regulated market and the larger unregulated swaps market -- where private bets on the movement of oil prices takes place -- speculators are making hundreds of billions of dollars at the expense of everyone who drives. Every time speculators start manipulating oil prices, new billionaires are made on Wall Street, and oil company profits go through the roof. Indeed, greed is not a virtue.
Sen. Maria Cantwell (D-Wash), said "The sheer volume of new capital coming from hedge funds, financial traders and other long-term passive investors — interests that mostly buy oil futures to turn a quick profit — is creating artificial demand and driving up the price for consumers" in a statement accompanying a letter that she and 16 other U.S. Senators issued this past Thursday, and urged the CFTC to impose rules limiting speculators' ability to do this according to McClatchy News.
Returning to limits that prevailed for much of the past century would rein in speculation to about 30 percent of the oil market according to analysts McClatchy News spoke with. A review of two decades worth of CFTC data by McClatchy News revealed that from 1991 forward, big financial players such as Goldman Sachs and J.P. Morgan Chase won exemptions that freed them from limits on how much they could speculate in future markets. After being classified as commercial traders, the U.S. government, under leadership in the tenth year of Reagan Republicanism, reduced regulations on markets which enabled the speculation we're once again witnessing today. In mid-2006 the CFTC began distinguishing Wall Street's trades from the industrial users, calling the strictly financial trades "non-commercial." CFTC records since mid-2006 indicate that speculative trades raced past commercial trades. Indeed, Wall Street has a dubious history of manipulation.
Until Reagan Republicanism deregulated the markets, prior to 1991, speculators made up about 30 percent of the futures, not 70 percent. The CFTC's latest reporting period from May 3 shows that the speculators made up 68 percent compared to 32 percent of contracts for actual users of oil. Speculation has also played a major role in manipulating prices in the energy sector, and many other sectors too. In fact, Reagan Republicanism resulted in the deregulation of Wall Street and the financial sector in 1999, which has caused the current recession we're living in today, and still dominates our national politics.
Supply and demand has not played a part in the rising gas prices at the pump and there is no shortage of oil. An estimated 3 to 4 million barrels per day (bpd) of excess oil production capacity takes place in the world today. U.S. oil production has also continued to grow. Last year the U.S. produced 5.5 million bpd compared to 4.95 bpd it produced in 2008 and the Energy Information Administration forecasts U.S. oil production to hold at 5.5 million bpd this year and rise to 5.54 million bpd next year.
Despite the growing evidence of speculators once again manipulating the market, the facts have yet to produce any corrective regulatory action in the U.S. government. Last month President Obama ordered an interagency task force to be created and led by U.S. Attorney General Eric Holder to determine if price gouging or speculative manipulation is occurring, but he stopped short of ordering a full-blown investigation with additional government resources according to McClatchy News. Will the U.S. Department of Justice investigate to determine whether or not there has been illegal activity? In today's political environment, probably not.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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